The chart
Within the global high-yield market, bonds offering the highest yield (widest credit spread) at the start of the year have performed the worst year to date.
Source: Global high-yield market = ICE BofA Global High Yield Constrained Index. Year-to-date returns calculated between 1 January – 28 May 2025.
The context
At the start of the year, credit markets looked expensive, with tight credit spreads meaning the global ‘high yield’ market offered disappointingly low yields overall. The year-to-date return experience of investors who responded by reaching for riskier market segments is a cautionary tale.
The chart takes the global high-yield market in January and groups it into different credit-spread bands, ranging from below 0 (bonds that were about to be called) to spreads of 800+bps (riskier issuers). For each of these groups, we calculated the year-to-date return. This shows that the widest spread (i.e., highest yielding) parts of the universe have delivered the weakest returns to investors.
Justin Jewell, Co-Head of Developed Markets Specialist Credit, Ninety One: “A variety of factors explain this, but the primary theme is that issuers with the most leveraged balance sheets are struggling with tight cash flow and will need a combination of active M&A, solid growth and lower interest rates to help them repay their debt.”
“While this is a short time frame to consider, it holds some useful lessons for investors,” he adds.
The conclusion
When searching for yield, investors should beware crude approaches, especially in these increasingly uncertain times. Simply reaching for the wider spreads (and higher yields) offered by riskier areas of the market can result in negative return surprises. The search for yield can and should be more nuanced. For instance, the significant dispersion within even the weakest performing group considered above1 means a highly selective approach within the high-yield market could lead to much better investment outcomes.
In fact, we would argue that investors should rethink the ‘higher risk = higher return’ perception of old. Year to date, some of the higher-quality, more defensive assets in the investment universe have delivered the best returns. And more specialist market segments – although less familiar than the traditional high-yield market – have proven to be highly useful portfolio building blocks. Examples include the bank capital market, which has returned over 4% in US dollars so far this year.
“More broadly, heightened levels of dispersion seen across and within credit markets today necessitate a much more nuanced and selective approach to picking investments, while also creating a rich hunting ground for active and flexible investors,” Jewell concluded.
1 For instance, index constituents that started the year with a spread between 601 and 700bps generated returns ranging from +11% to -30%; the average was -2.7%.